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Does The Future of Maine’s Biomass Lie in Europe?

Over the past week, I have enjoyed reading the debate surrounding Maine’s biomass and the proposed bailout of the utility. Simply defined, biomass is the term given for unused portions of the tree, such as tops and branches, as well as unused residue from milling, such as sawdust. This waste wood is mostly used for energy production both thermal and electrical. However, like most other wood products as of late, the market for biomass has been lackluster. The combination of an unseasonably warm winter and low oil and natural gas prices has caused quite a bit of grief for biomass producers who now face lower demand and increased competition.

Reading about these current woes in the news, as well as hearing about it anecdotally from friends – and keeping in spirit with the post I made a few weeks ago about prospective markets for low grade materials – I wanted to do a bit of investigation into an area of the market I’ve heard a great deal about over the past few years: biomass exports to Europe; specifically, exporting wood pellets to the UK and northern Europe. This has become a booming business in certain parts of the country, and it could represent large potential for Maine’s forests. It’s not a new idea, but given the increasing exports that every year seems to bring, it’s a market that warrants another look.

The Opportunity

Biomass is considered a renewable, green energy. carbon that is released from burned wood can then be sequestered by the growth of forest regeneration; that’s exactly why Europe imports it. Various nations within the European Union have taken great strides to reduce greenhouse emissions, and the EU itself has a goal of 20% renewable consumption by 2020. Biomass is proving to play an important role in this energy mix, comprising up to 80% of renewable production in some countries. Unlike solar and wind power, biomass provides a store of energy that can be released at any time, and it can be burned along with coal to increase carbon neutrality of otherwise “dirty” emissions (although, notably, by mass, wood pellets have 51% the energy of coal and only 31% by volume).

What’s exciting about this is that Maine is superbly positioned to produce and export these products to fill Europe’s seemingly insatiable appetite. Currently, the vast majority of exports are handled in the southern ports of the US, but in fact the ports of Maine are closer to northern Europe than ports to the south (25% closer, according to my Google Earth estimates), representing a savings of $4/ton in freight costs. If the state’s industry positions itself right, Maine may be able to capture a significant portion of the export market.

The Threat

Increasingly, however, doing business with the European Union is an uncertain deal, particularly when subsidies are in the mix. The EU has been in the midst of an ongoing debt crisis that rears its head now and then, just as people start to think it has been solved; flaring up most recently this past July. The poor economic prospects and resulting political upheaval has led to a rise in Euroscepticism, which is the term given to people and parties who doubt the supposed benefits of the EU. Compounding the Eurosceptic ideologies, which manifest in both left and right wing parties, is the recent refugee crisis. The most salient effect of this has been the scheduled referendum in the UK, the largest importer of pellets, to leave the EU. It is unclear what effect that would have on subsidies, the long-term viability of the Eurozone, and the value of the pound, but it could certainly throw a wrench in import projections.

Along with macroeconomic uncertainties, anything that is willed into existence with large government subsidies is subject to public support and outcry, and biomass is no exception. We are well aware of concerns about green energy that tend to come from the political right, but biomass has an additional problem of facing criticism from the political left. Namely, it is criticized for not actually being carbon neutral. When discussing carbon neutrality for biomass, the idea is that harvested mass will be replaced by new growth, and that growth will sequester CO2 from the atmosphere. However, this analysis, it is argued, does not consider the carbon released during harvest, trucking, production of pellets, or, of course, the fuel used to take the pellets across the pond which could make carbon output net positive. Others argue that demand for pellets will increase forest land or allow trees to grow faster and larger, which brings it back to net zero. Though I made a similar argument last month, it is here, admittedly, where arguments become more speculative. In any case, renewable energy initiatives are certainly subject to these often sweeping sentiments, and it is more of a concern in parliamentary systems where governments seem to turn on a dime.

Is There a Future in Europe?

Future uncertainties and risks aside, the biomass market exists and is increasing. Several Maine projects are attempting to capitalize on the opportunity, but thus far seem to have issues securing investment. It’s a shame, as it seems future production capacity is destined to end up in the hands of the south or Canada. Still, it should be mentioned that though pellet exports could be a large opportunity for Maine markets, they will not be a silver bullet.

I mentioned earlier that the total value of US pellet exports to Europe equals around $500 million dollars. To put that number in perspective, that’s fairly close to the value of paper exports in 2015 – for just the state of Maine. Though pellet exports are increasing and are said to double within the next decade, it’s still a relatively small market. There is nothing wrong with that. In fact, I would argue that this makes the opportunity all the more appealing. It offers a way for the Maine forest industry to diversify itself into foreign markets without threatening to completely restructure industrial infrastructure in a way that heavily exposes us to the very risks mentioned above. The future of Maine’s forests is likely to be an aggregate of these smaller industries and markets, and there is good reason to believe pellets could be a part of that future. Producers are still struggling to work through current challenges, so the question is a bit academic. Nonetheless, it is opportunities like these that bring promise to the industry of tomorrow.